Rick's Cabaret balances stock options and stockings

HOUSTON, Aug 27 (Reuters) - Option plans, market demographics, Internet strategies, mergers and acquisitions -- all areas of expertise needed by the savvy 21st century strip club CEO.

For Rick's Cabaret International Inc. (NasdaqSC:RICK - News), the only publicly traded U.S. burlesque chain, pleasing both customers and shareholders has led to a unique corporate culture.

That mix of boardroom and breasts was on display Friday morning, when the company hosted shareholders at its annual meeting in its north Houston club.

"Hopefully we'll see the end of the slow period we've seen since 9-11," Chairman, Chief Executive Officer and Acting Chief Accouting Officer Eric Langan, 36, told the smattering of shareholders gathered at the club, holding out the promise of improved earnings. The company posted a profit of $607,000 in the first half of its fiscal year.

Surrounded by vacant strippers' stages, erotic photos and a neon sign pointing to the "Champagne Lounge," investors easily passed motions to amend a stock option plan and elect five directors to the board.

Strategy remained a hot topic for the Houston company that started with Rick's Cabaret "upscale gentleman's clubs" in Texas and Minnesota, and has since branched out with its couples-only club "Encounters" and its new "Club Onyx," targeting an African-American audience.

An E-Bay style auction website, NaughtyBids.com, provides a marketplace for adult items, while another Internet site sells subscription-based pornography.

The meeting lasted only a few minutes, though shareholders lingered as scantily-clad dancers began to emerge and circulate among the just-arriving lunchtime crowd.

Langan admits that size is Rick's biggest problem, since its market capitalization of less than $10 million is too modest to attract the investment funds.

"Once we hit a market cap of $50 million, everything changes," Langan told reporters, adding the company would probably have to double its forecasted annual revenue of about $15.9 million to reach that mark.

Its stock price has stood near $2.54, up from $1.74 at the end of 2003, but was steady with levels four months ago.

Market forces such as the downturn from the September 11, 2001 attacks on New York and Washington have proven as difficult to manage as religious and community foes, who pushed through a 1997 zoning rule in Houston requiring the clubs be at least 1,500 feet from a residential area, school, church, park or day-care center.

The company has taken the battle against that law all the way to the U.S. Supreme Court, which has yet to issue a decision.

Rick's also narrowly avoided a stock delisting in 1998, when its share price on the NASDAQ exchange fell to a low of 50 cents from nearly $9 in just four months.

That happened because a Wall Street short-seller was driving down the company's stock, hoping to score big profits if it drove the stock off the board, Langan said.

The company survived the attack with a well-timed press release and the help of the the late 1990s technology bubble that sent nearly any Internet company's stock soaring.

"All we said was that we were going to look at the Internet, and our stock jumped to about $5," Langan told reporters.